Eight million Canadians—or 21 percent—struggle with the realities of living in the non-prime space for credit scores. This means that one in five Canadians, who might otherwise be financially responsible, are caught in a financial tailspin with little to no access to sustainable, healthy solutions. They’re often limited to short-term, high-interest collection strategies that keep them in perpetual debt.
But that’s not good for business, the economy or the future of our country.
Generationally speaking, Baby Boomers still make up the largest portion of borrowers at 30 percent, but not for long. Millennials comprise more than 26 percent of Canadian borrowers and will soon be the largest population of credit-active consumers.
Millennials play a critical role in the future of consumer credit and yet they have the highest consumer delinquency rates and compounding debt. Many of them are beginning to borrow larger sums and more frequently as they purchase homes, vehicles, start businesses, and support their growing families.
The ability to access affordable credit is essential to their own growth—and the economic growth that comes along with engaging an expansive consumer base.
What alternative credit scoring means for businesses and consumers
What if we were to expand the credit market and give more affordable access to some of the 21 percent of Canadians, for example, who are stuck in an unhealthy collection strategy? Where traditional credit scoring and consumer identity tools fall short, what if we could tap into Big Data and AI to get a more holistic picture of our young and non-prime consumer base?
Our Progressa Score™, for example, is a 5th Generation proprietary score based on data science. We’ve collected nearly a decade of real lending data and created algorithm scores that predict repayment probability. Using modern financial technology, we can create a real-time overview of an entire customer’s story and their history of personal finances. Our technology gathers 115 million actionable customer data points to build a credit score—whereas traditional scoring has an element of human bias.
Where most conventional lenders look at traditional credit scores of below 680 and turn down that one in every five Canadian, Progressa looks to expand the credit market. We look at a consumer’s current financial behaviour and character. We connect that with their history and AI data points to create a score that may identify some non-prime consumers who in fact exhibit consumer prime behaviour.
How alternative credit scoring help businesses and consumers
Your business needs to collect past due balances, increase retention, and boost NPS and customer happiness in order to increase reacquisition. Consumers—and your customers—want a realistic and sustainable plan to get out of debt or get a loan with lower interest and less money down (which they can’t do with traditional bad credit).
By tapping into reliable, time-proven data science and algorithms, you can make a more accurate assessment of a borrower’s creditworthiness. This broadens your consumer market potential to be able to loan to some of the 21 percent of Canadians who are traditionally non-prime borrowers—but without the risk to your business. Progressa’s alternative credit scoring has 2.5 times better recoveries than traditional collection methods.
Young and conventionally non-prime consumers can now have more access to affordable credit. They can borrow from your business and develop a healthy collection strategy to get out of the destructive debt cycle.
“As consumer debt continues to increase, it’s clear that the youngest generations are playing a critical role in the consumer credit market,” says Matt Fabian, director of research and industry analysis for TransUnion Canada. “Millennials are taking on additional balances as they reach significant life events that put pressure on their overall wallet.”
What consumers and businesses need now and in the future is a collection strategy—and credit scoring system—that’s built for (and with) the modern tech-driven world. It’s a win-win for lenders and borrowers.
The author Sam Milbrath
Sam Milbrath is a freelance copywriter and brand marketer. When she isn’t writing for brands or doing her own creative writing, she’s exploring, taking photographs, gardening and doing pottery. Check out her work at www.sammilbrath.com